Educational Articles

Stock Screen: Upcoming Stock Splits – February 11, 2011

Lester Ratcliff
| February 11, 2011

Investors looking for positive indicators of a stock’s future performance often consider a stock split a good sign. As a technical matter, a stock split changes nothing about a company’s performance or value. True, per share numbers must be adjusted, but the underlying revenues and profits aren’t altered—just the per share statistics. Still, companies often split their shares when their stocks have appreciated to the point where investors may question an investment because of limited capital. So, by splitting the shares, the stock becomes more appealing to a broader group of investors and, it is believed, that pent up demand for what is already a richly valued stock, based on a relatively high price, will help spur the price higher after the split.

Of course, stock prices don’t always continue to ascend after a stock split. And, there are times when companies with low share prices use reverse stock splits to boost share prices above exchange minimums so that they may remain listed. So, a stock split is not the sole criteria by which a company should be judged. That said, it is an interesting indicator that more research about a company could be worthwhile.

Ball Corporation

Ball Corp. manufactures metal and plastic packaging containers, primarily for the beverage and food industries. The company also supplies government and commercial customers with aerospace and other high-technology products. Packaging accounted for 91% of 2009 sales, with aerospace contributing the balance, or 9%.

Earnings are benefiting from strong sales of beverage packaging containers in the
Americas and Asia, and from effective cost controls. Demand for beverage cans, especially in Brazil and China, seems likely to continue rising rapidly. In addition, momentum is building in the German beverage-can market. Meanwhile, the aerospace business should be aided by several newly awarded multiyear satellite contracts, which are scheduled to begin in 2011 and ramp up in 2012. Moreover, the company has been active on the acquisition front, with further purchases and joint ventures possible. The ex date for Ball’s 2-for-1 stock split is February 16, 2011.

Hormel Foods Corporation

Hormel Foods is an international manufacturer and marketer of consumer-branded meat and food products, which are sold fresh, frozen, cured, smoked, cooked, and canned. Some of the company’s well-known brand names include Hormel, Always Tender, Cure 81, SPAM, Dinty Moore, Jennie-O, Mary Kitchen, Little Sizzlers, Chi-Chi’s, and Kid’s Kitchen. The company distributes its products to supermarkets and independent food stores in all 50 states, as well as overseas. Hormel has approximately 19,300 employees.

Despite a challenging business climate, Hormel is managing to generate profit growth. The top line continues to benefit from successful branding initiatives, which have helped the company gain market share, cultivate a loyal customer following, and distance itself from its commodity-oriented meatpacking roots. However, a rise in pork prices is squeezing margins across Hormel’s core Refrigerated Foods and Grocery Products segments. (These units account for about two-thirds of the sales mix.) Meanwhile, the turkey division is also facing cost headwinds from an uptick in feed prices and less favorable supply-and-demand dynamics in the turkey sector. On balance, however, the 3- to 5-year outlook is still bright, enhanced by probable accretive acquisitions and a push into faster-growing product categories, like Mexican food and other ethnic fare. The ex date for the 2-for-1 stock split is February 15, 2011.

Recently Split

Freeport-McMoRan Copper & Gold (FCX) shares split 2 for 1, effective February 2, 2011. The company is engaged in the exploration and production of copper, gold, and other commodities in Indonesia, North America, South America, and Africa. Freeport produced over 3.3 billion pounds of copper, 2.4 million ounces of gold, and 53.0 million pounds of molybdenum in 2009. The miner has net proven and probable reserves of about 83.0 billion pounds of copper, 33.6 million ounces of gold, and 2.4 billion pounds of molybdenum.

Telefonica, S.A. (TEF) ADRs split 3 for 1 on January 21, 2011. The company provides a range of telecommunications services (telephone, mobile, Internet, data, and entertainment) primarily in Spain, Portugal, and number of Latin American countries. It has also been expanding its services in the rest of Europe. Sales in Spain accounted for about 35% of Telefonica’s consolidated sales in 2009, Latin America comprised about 41%, and the rest of Europe brought in about 24%.

At the time of this article's writing, the author did not have positions in any of the companies mentioned.